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Thursday, November 22, 2007

Climate Change - Getting it Right

Chapter 4: Reviewing Stern - Lessons for Australia By Robert MendelsohnAlthough the Stern Review is sometimes cited as an authoritative account of the economics of climate change, it is more of an advocacy paper for aggressive short-term abatement than a balanced economic analysis. The Stern Review makes four assumptions to support capping greenhouse gas concentrations at 550 parts per million (ppm). First, it examines the cost of its preferred policy only against doing nothing at all. It does not consider more efficient policy alternatives. Second, it chooses a very low discount rate to try to hide the long lag between mitigation costs and climate benefits. Third, it exaggerates climate damages, looking at only the worstcase scenarios. Fourth, it takes a very optimistic view of the cost of abatement, assuming a rapid rate of prolonged technical change will make mitigation inexpensive. Consequently, the Stern Review is not a balanced assessment of the costs and benefits of climate change and the recommended policy of aggressive near-term abatement is most likely a terrible waste of resources. Australia’s Garnaut Climate Change Review should be careful to avoid these same biases.

Chapter 6: Climate change and India - A perspective from the developing world By Jyoti Parikh

The race is on to find a post-Kyoto international framework. Whatever replaces Kyoto will only be effective if it is undertaken as a parallel effort and not instead of the United Nations Framework Convention on Climate Change (UNFCCC), which has been painstakingly created. The UNFCCC has not only ensured the participation of a large number of countries year after year, but also has a framework that could be built upon and expanded with various programs, like a carbon emissions trading scheme. This paper discusses various alternatives for a post-Kyoto regime. It focuses on a three-tier system, a proposal that considers per capita global average emissions as a reference point. It also briefly discusses the Asia-Pacific Partnership on Clean Development and Climate (AP6), in which Australia is playing a leading role. These issues are discussed in the context of the developing countries, especially as they relate to their needs and capabilities. The paper ends with a look at some of the strategies and polices for carbon emissions reduction in India.

Chapter 7: The carbon tax - An alternative to carbon trading By Robert Shapiro

A solid consensus has emerged among scientists and most public officials around the world that emissions of greenhouse gases from burning fossil fuels, especially carbon dioxide (CO2), contribute significantly to climate changes which could have very serious, adverse effects. Since every industrialised nation produces these emissions they all need to be part of the global effort to control them. This paper examines the two most prominent strategies for reducing greenhouse gases: a global system of national caps on the emissions and tradable permits, modelled on the Kyoto Protocol, and global, harmonised, net carbon based taxes. It finds that cap-and-trade systems can achieve their emissions targets year by year, but will introduce significant additional volatility in energy prices. These systems also entail substantial administrative complexities and costs, and their emissions goals can be undermined by evasion and manipulation. Carbon taxes are less certain to achieve their emissions targets year by year, but their levels can be adjusted to minimise this deficiency. They are also easier and less expensive to administer, less vulnerable to manipulation and evasion, and provide more reliable incentives to develop and use alternative fuels and more energy-efficient technologies. Based on economic analyses and evidence, we conclude that carbon taxes are the more environmentally effective and economically efficient strategy for addressing climate change.

Promising to reach an emissions target on a precise timetable is a popular approach to climate policy – indeed it underlies the Kyoto Protocol. Despite its popularity, there are many problems with this strategy. A better approach is to specify a target but to allow costs to determine the speed at which the target is approached. This can be achieved using a hybrid of targets and emission fees. This paper summarises the targets and timetables approach to climate policy and how it is usually implemented in cap-and-trade permit markets. However, as a basis for domestic policy or for an international climate regime there are major flaws in this approach. We then present the McKibbin Wilcoxen hybrid approach and compare it to the approach proposed by the Prime Minister’s Emissions Trading Task Group.

Chapter 9: Castles in the ground - The prospects for carbon capture and storage By Peter Cook

Carbon dioxide emissions and atmospheric concentrations continue to rise. At the same time, projections of world energy demand indicate increasing use of fossil fuels, especially coal. Because of this, there is interest in using carbon capture and storage technologies as a mitigation option, particularly in Australia because of its dependency on fossil fuels for electricity generation and the importance of its fossil fuel exports. Capture options include post-combustion capture (PCC), integrated gasification combined cycle (IGCC) and oxyfuels combustion. Carbon dioxide can be stored in the ocean and in minerals, but by far the most likely option is storage in suitable geological locations. Australia appears to have abundant geological storage capacity, particularly in saline formations and to a lesser extent in depleted oil and gas fields. Australian capture and storage projects are planned for most states. Acceptance by the community will be dependent in part on cost, but confidence that the technology is safe will be crucial. This will require an effective regulatory regime and appropriate monitoring and verification. For capture and storage to play its part in reducing global emissions, we must aim at large-scale deployment by 2015–2020. Australia could become an early mover in the application of carbon dioxide capture and geological storage.